Entreprise Value - What is It?

A number that you may have come across during your investment research is "Enterprise Value". "Enterprise Value" is usually on the line below "Market Cap" on most online financial information sites.

Let's take an example: Google currently has a market capitalization of $145.68 billion dollars, and an Enterprise Value of $136.24 billion dollars.

Another example: RF currently has a market cap of $6.44 billion dollars, and an enterprise value of $31.47 billion dollars.

So what is meant by "enterprise value"?

"Enterprise value" is a way that you can value a company, much like market capitalization. The calculation for "enterprise value" is:

Market capitalization plus debt, minority interest and preferred shares

MINUS

Total cash and cash equivalents

As you can see, this provides a more accurate value of the company compared to just the market capitalization. This calculation takes into account debt, preferred shares and cash.

If you were buying a company, you would surely want to know what the enterprise value of the company was. When you are buying a company, you are assuming its debts so you obviously have to know exactly how much the company owes.

Basically - enterprise value provides a "takeover" value that more accurately values the company.






Filed under: Stock Market Education | General Knowledge